Teva Reports Third Quarter 2014 Results

Teva Reports Third Quarter 2014 Results

Revenues of $5.1 billion, in line with the third quarter of 2013. Excluding the impact of the divestment of the U.S. OTC plants and of foreign exchange fluctuations, sales grew organically by 2%.
Non-GAAP operating income of $1.5 billion, an increase of 13% from the third quarter of 2013. GAAP operating income of $1.1 billion, up 39%.
Non-GAAP net income of $1.1 billion, an increase of 6%. GAAP net income of $876 million, up 23%.
Non-GAAP diluted EPS of $1.32, an increase of 4%. GAAP diluted EPS of $1.02, up 21%.
Strong cash flow from operations of $1.4 billion, an increase of over 200% compared to the third quarter of 2013.
Generic medicine profitability improved 40% to reach $556 million.
EPS guidance for full-year 2014 raised to $5.00-5.10, from $4.90-5.10.
Company increases its share repurchase program to $3 billion, with purchases to commence promptly; represents an increase of $1.7 billion to the existing program.

JERUSALEM--(BUSINESS WIRE)--Oct. 30, 2014-- Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) today reported results for the quarter ended September 30, 2014.

"The effort we have put forth thus far in 2014 towards solidifying our foundation to drive organic growth is reflected in our strong third quarter results. We delivered improvement in profitability in all businesses, particularly in global generics, which saw profitability increase by 40% year over year. The quarter results are an important example of Teva's commitment to strengthen our global leadership position in generics, fully execute our cost reduction program, and focus on cash and cash flow generation. We also remain fully committed to transform and simplify our operational network and make quality a competitive competency for us," stated Erez Vigodman, President & CEO of Teva.

"We recently announced our strategic decision to focus our therapeutic areas, and, at the same time, we continue to see progress in both the development and commercialization efforts of new specialty products including our NDA for hydrocodone bitartrate ER tablets, which was accepted by the U.S. Food and Drug Administration. Our pipeline is poised to deliver significant long-term value and we will continue the efforts to further deepen and develop it."

Erez Vigodman continued, "We are well positioned to achieve our goals for 2014. Additionally, our Board of Directors has approved to resume and increase our share repurchase program. Leveraging our strong cash flow, we will continue to focus on creating value through a balanced approach to capital allocation via dividend distribution and share repurchases while continuing to pursue strategic business development opportunities."


Generic Medicine Segment

  Generics
Three Months Ended September 30,
2014   2013
U.S.$ in millions / % of Segment Revenues
       
Revenues  $ 2,432  100.0%  $ 2,489  100.0%
Gross profit   1,078  44.3%   984  39.5%
R&D expenses   134  5.5%   119  4.8%
S&M expenses   388  16.0%   469  18.8%
Segment profitability*  $ 556  22.9%  $ 396  15.9%
          
*  
Segment profitability consists of gross profit, less S&M and R&D expenses related to the segment. Segment profitability does not include G&A expenses, amortization and certain other items.

The data presented have been conformed to reflect the revised classification of certain of our products for all periods.


Generic Medicine Revenues

Generic medicine revenues in the third quarter of 2014 amounted to $2.4 billion, a decrease of 2%, or 1% in local currency terms, compared to the third quarter of 2013.

Generic revenues consisted of:

U.S. revenues of $1.1 billion, a decrease of 1% compared to the third quarter of 2013. The decrease resulted mainly from a decline in sales of amphetamine salts (the generic equivalent of Adderall®) and the loss of exclusivity of niacin ER (the generic equivalent of Niaspan®). This decrease was largely offset by sales of products sold in the third quarter of 2014 that were not sold in the third quarter of 2013, the most significant of which were capecitabine (the generic equivalent of Xeloda®) and omega-3-acid ethyl esters (the generic equivalent of Lovaza®), as well as entecavir (the generic equivalent of Baraclude®), which was launched exclusively during the third quarter of 2014.
European revenues of $757 million, a decrease of 3%, or 4% in local currency terms, compared to the third quarter of 2013. The decrease resulted mainly from our strategy of pursuing profitable and sustainable business in the region, with a significant decrease in Spain partially offset by increases in certain other markets. This strategy has continued to lead to notable improvements in the profitability of our European generics business.
ROW revenues of $551 million, a decrease of 3%, but an increase of 4% in local currency terms, compared to the third quarter of 2013. The increase in local currency terms was mainly due to higher revenues in Latin America and Canada, which were partially offset by lower revenues in other ROW markets.
API sales to third parties of $185 million (which is included in the market revenues above), an increase of 9%, or 10% in local currency terms, compared to the third quarter of 2013. The increase resulted from higher sales mainly in our ROW markets.
Generic medicine revenues comprised 48% of our total revenues in the quarter, down from 49% in the third quarter of 2013.

Generic Medicine Gross Profit

Gross profit from our generic medicine segment in the third quarter of 2014 amounted to $1.1 billion, an increase of $94 million, or 10%, compared to the third quarter of 2013. Gross profit margin for our generic medicine segment in the third quarter of 2014 increased to 44.3%, from 39.5% in the third quarter of 2013. The higher gross profit was mainly a result of lower expenses related to production, higher revenues from our API business and higher gross profit due to the change in the composition of revenues, as well as the impact of our efficiency measures.

Generic Medicine Profitability

Profitability of our generic medicine segment amounted to $556 million in the third quarter of 2014, an increase of 40% compared to $396 million in the third quarter of 2013. Generic medicine profitability as a percentage of generic medicine revenues was 22.9% in the third quarter of 2014, up from 15.9% in the third quarter of 2013. The increase was primarily due to higher gross profit coupled with a reduction in S&M expenses, partially offset by higher R&D expenses.


Specialty Medicine Segment

  Specialty
Three Months Ended September 30,
2014   2013
U.S.$ in millions / % of Segment Revenues
       
Revenues  $ 2,176  100.0%  $ 2,071  100.0%
Gross profit   1,890  86.9%   1,788  86.3%
R&D expenses   223  10.2%   221  10.7%
S&M expenses   473  21.7%   445  21.5%
Segment profitability*  $ 1,194  54.9%  $ 1,122  54.2%
          
*   Segment profitability consists of gross profit, less S&M and R&D expenses related to the segment. Segment profitability does not include G&A expenses, amortization and certain other items.
The data presented have been conformed to reflect the revised classification of certain of our products for all periods.

Specialty Medicine Revenues

Specialty medicine revenues in the third quarter of 2014 amounted to $2.2 billion, an increase of 5% compared to the third quarter of 2013. U.S. specialty medicine revenues amounted to $1.5 billion, up 2% compared to the third quarter of 2013. European specialty medicine revenues amounted to $467 million, an increase of 2%, or 1% in local currency terms, compared to the third quarter of 2013. ROW specialty medicine revenues amounted to $176 million, up 71%, or 81% in local currency terms, compared to the third quarter of 2013.

Specialty medicine revenues comprised 43% of our total revenues in the quarter, compared to 41% in the third quarter of 2013.

The increase in specialty medicine revenues from the third quarter of 2013 was primarily due to higher sales of our CNS and oncology products, which were partially offset by lower revenues of other specialty medicines.

The following table presents revenues by therapeutic area and key products for our specialty medicine segment for the three months ended September 30, 2014 and 2013:

    Three Months Ended     Percentage
September 30,   Change
2014   2013   2014 - 2013
U.S. $ in millions  
CNS   $ 1,440  $ 1,362   6%
Copaxone®    1,107   1,052   5%
Azilect®    103   93   11%
Nuvigil®    94   87   8%
Oncology    299   251   19%
Treanda®    180   184   (2%)
Respiratory    218   235   (7%)
ProAir®    111   112   (1%)
Qvar®    64   69   (7%)
Women's Health    137   134   2%
Other Specialty     82    89   (8%)
Total Specialty Medicines   $ 2,176  $ 2,071   5%
          
The data presented have been conformed to reflect the revised classification of certain of our products for all periods.

Global sales of Copaxone® (20 mg/mL and 40 mg/mL), the leading multiple sclerosis therapy in the U.S. and globally, amounted to $1.1 billion, an increase of 5% compared to the third quarter of 2013.

In the United States, sales of Copaxone® amounted to $800 million, in line with sales in the third quarter of 2013. At the end of the third quarter of 2014, according to September 2014 IMS data, our U.S. market shares for the Copaxone® products in terms of new and total prescriptions were 28.3% and 32.2%, respectively. Copaxone® 40 mg/mL accounted for 55% of total Copaxone® prescriptions.

Sales outside the United States amounted to $307 million, an increase of 21%, or 24% in local currency terms, compared to the third quarter of 2013. The increase is a result of the timing of a tender in Russia, partially offset by lower revenues in other markets.

Our global Azilect® revenues amounted to $103 million, an increase of 11% compared to the third quarter of 2013, while global in-market revenues increased 6% to $129 million. The increase in our sales reflects volume growth and price increases in the United States, as well as volume growth in Europe.

Sales of our oncology products amounted to $299 million in the third quarter of 2014, an increase of 19% compared to the third quarter of 2013. The increase resulted primarily from sales of our recently launched G-CSF products, Lonquex® and Granix®. Sales of Treanda® amounted to $180 million in the third quarter of 2014, compared to $184 million in the third quarter of 2013.

Sales of our respiratory products amounted to $218 million in the third quarter of 2014, a decrease of 7% compared to the third quarter of 2013. ProAir® revenues amounted to $111 million in the third quarter of 2014, down 1% compared to the third quarter of 2013, mainly due to pricing variances, largely offset by volume growth. Qvar® revenues amounted to $64 million in the third quarter of 2014, a decrease of 7% compared to the third quarter of 2013, due to pricing variances. Following EMA approval in April 2014, DuoResp Spiromax® for the treatment of asthma and COPD, was launched in the U.K., Norway, Sweden and Ireland during the quarter.

Specialty Medicine Gross Profit

Gross profit from our specialty medicine segment amounted to $1.9 billion in the third quarter of 2014, an increase of $102 million compared to the third quarter of 2013.

Gross profit margin for our specialty medicine segment in the third quarter of 2014 was 86.9%, compared to 86.3% in the third quarter of 2013.

Specialty Medicine Profitability

Profitability of our specialty medicine segment amounted to $1.2 billion in the third quarter of 2014, an increase of 6% compared to the third quarter of 2013, mainly due to higher revenues and partially offset by higher S&M expenses in connection with new product launches.

Specialty medicine profitability as a percentage of segment revenues was 54.9% in the third quarter of 2014, up from 54.2% in the third quarter of 2013.

The following tables present details of our multiple sclerosis franchise and of our other specialty medicines for the three months ended September 30, 2014 and 2013:

Multiple Sclerosis
  Three months ended September 30,
2014   2013
U.S.$ in millions / % of MS Revenues
       
Revenues  $ 1,107  100.0%  $ 1,052  100.0%
Gross profit   991  89.5%   943  89.6%
R&D expenses   23  2.1%   18  1.7%
S&M expenses    104   9.4%    127   12.1%
MS profitability  $ 864   78.0%  $ 798   75.9%

Other Specialty

Three months ended September 30,
2014  2013
U.S.$ in millions / % of Other Specialty Revenues

Revenues  $ 1,069  100.0%  $ 1,019  100.0%
Gross profit   899  84.1%   845  82.9%
R&D expenses   200  18.7%   203  19.9%
S&M expenses    369   34.5%    318   31.2%
Other Specialty profitability  $ 330   30.9%  $ 324   31.8%
          
The data presented have been conformed to reflect the revised classification of certain of our products for all periods.

Other Activities

Our OTC revenues related to PGT amounted to $224 million, an increase of 1% compared to $222 million in the third quarter of 2013. In local currency terms, revenues increased by 7%. The increase in local currency terms was mainly due to higher sales in Russia and Latin America, partially offset by lower sales in Europe. PGT's in-market sales amounted to $372 million in the third quarter of 2014, a decrease of $2 million compared to the third quarter of 2013. This decrease was due to lower sales in Europe, partially offset by higher sales in Latin America and Asia.

Our revenues from OTC products in the third quarter of 2014 amounted to $225 million, compared to $286 million in the third quarter of 2013. The decline was mainly due to the sale of our U.S. OTC plants, previously purchased from P&G, back to P&G in July 2014.

Other revenues amounted to $225 million in the third quarter of 2014, mostly from the distribution of third-party products in Israel and Hungary, up 6% compared to the third quarter of 2013.

Key Metrics for the Third Quarter 2014

Non-GAAP information: Net non-GAAP adjustments in the third quarter of 2014 amounted to $258 million. Non-GAAP net income and non-GAAP EPS for the quarter are adjusted to exclude the following items:

Amortization of purchased intangible assets totaling $242 million, of which $239 million is included in cost of goods sold and the remaining $3 million in selling and marketing expenses;
Impairment of long lived assets of $151 million;
Income in connection with legal settlements and loss contingencies of $122 million;
Costs associated with cancellation of R&D projects of $52 million;
Branded prescription drug fee of $40 million;
Restructuring and other expenses of $23 million;
Regulatory actions taken in facilities of $13 million; and
Related tax benefit of $141 million.
Teva believes that excluding such items facilitates investors' understanding of its business. See the attached tables for a reconciliation of the U.S. GAAP results to the adjusted non-GAAP figures.

Exchange rate differences between the third quarter of 2014 and the third quarter of 2013 decreased our revenues by $57 million and reduced our operating income (both non-GAAP and GAAP) by $26 million.

Non-GAAP gross profit was $3.1 billion in the third quarter of 2014, up 4% from the third quarter of 2013. Non-GAAP gross profit margin was 60.6% in the third quarter of 2014, compared to 58.0% in the third quarter of 2013. GAAP gross profit was $2.8 billion in the third quarter of 2014, compared to $2.6 billion in the third quarter of 2013. GAAP gross profit margin was 55.5% in the quarter, compared to 52.0% in the third quarter of 2013.

Research and Development (R&D) expenditures (excluding costs associated with cancellation of R&D projects) in the third quarter of 2014 amounted to $360 million, compared to $348 million, in the third quarter of 2013. R&D expenses were 7.1% of revenues in the quarter, compared to 6.9% in the third quarter of 2013. R&D expenses related to our generic medicine segment amounted to $134 million in the third quarter of 2014, an increase of 13% compared to $119 million in the third quarter of 2013, mainly due to higher expenses associated with the development of complex and high-barrier generic products and with the development of generic products for the U.S. market. R&D expenses related to our specialty medicine segment amounted to $223 million in the third quarter of 2014, an increase of 1% compared to $221 million in the third quarter of 2013.

Selling and Marketing (S&M) expenditures (excluding amortization of purchased intangible assets and branded prescription drug fee) amounted to $907 million, or 17.9% of revenues, in the third quarter of 2014, compared to $961 million, or 19.0% of revenues in the third quarter of 2013. S&M expenses related to our generic medicine segment amounted to $388 million in the third quarter of 2014, a decrease of 17% compared to $469 million in the third quarter of 2013, mainly due to lower expenses in Europe, Russia and Japan as well as lower royalty payments in the United States. This decrease reflects our ongoing cost reduction efforts. S&M expenses related to our specialty medicine segment amounted to $473 million, an increase of 6% compared to $445 million in the third quarter of 2013. The increase was primarily due to higher expenditures related to our launches of DuoResp Spiromax®, Lonquex®, Granix® and Adasuve®, as well as preparation for additional product launches planned for the remainder of 2014.

General and Administrative (G&A) expenditures amounted to $293 million in the third quarter of 2014, or 5.8% of revenues, compared with $297 million, or 5.9% of revenues, in the third quarter of 2013.

Quarterly non-GAAP operating income was $1.5 billion in the third quarter of 2014, an increase of 13% compared to the third quarter of 2013. Quarterly GAAP operating income was $1.1 billion in the third quarter of 2014, compared to $0.8 billion in the third quarter of 2013.

Non-GAAP financial expenses amounted to $77 million in the third quarter of 2014, compared to $71 million in the third quarter of 2013. GAAP financial expenses for the third quarter of 2014 amounted to $84 million, compared to $76 million in the third quarter of 2013.

The provision for non-GAAP tax for the third quarter of 2014 amounted to $301 million on pre-tax non-GAAP income of $1.4 billion, for a quarterly tax rate of 21.1%. The provision for tax in the third quarter of 2013 was $185 million on pre-tax income of $1.3 billion, or 14.7%. GAAP tax expenses for the third quarter of 2014 amounted to $160 million on pre-tax income of $1.0 billion, for a quarterly GAAP tax rate of 15.6%. In the third quarter of 2013, tax expenses amounted to $12 million on pre-tax income of $725 million.

The increase in our quarterly tax rate mainly reflects the lapse of our tax exemptions under the previous Israeli tax incentives regime in 2013. Our profits in Israel are now generally subject to a tax rate of 9%.

Non-GAAP net income and non-GAAP diluted EPS were $1.1 billion and $1.32, respectively, in the third quarter of 2014, an increase of 6% and 4%, respectively, compared to the third quarter of 2013. GAAP net income and GAAP diluted EPS were $876 million and $1.02, respectively, in the third quarter of 2014, compared to $711 million and $0.84, respectively, in the third quarter of 2013.

Cash flow from operations generated during the third quarter of 2014 amounted to $1.4 billion, compared to $0.4 billion in the third quarter of 2013. The increase was mainly due to lower payments related to legal settlements in the third quarter of 2014. Free cash flow, excluding net capital expenditures and dividends amounted to $924 million, an increase of $958 million from the third quarter of 2013.

Cash and investments at September 30, 2014 amounted to $1.8 billion.

For the third quarter of 2014, the weighted average outstanding shares for the fully diluted earnings per share calculation was 861 million on both a GAAP and non-GAAP basis. At September 30, 2014, the outstanding shares for calculating Teva's market capitalization were approximately 855 million.

Shareholders' equity was $23.7 billion at September 30, 2014, compared to $23.6 billion at June 30, 2014. The increase primarily reflects GAAP net income of $0.9 billion, partially offset by a negative impact of $0.7 billion due to currency fluctuations.

Dividend and Share Repurchase Program

The Board of Directors, at its meeting on October 28, 2014, declared a cash dividend for the third quarter of 2014 of NIS 1.21 per share (approximately 32.1 cents according to the rate of exchange on October 28, 2014).

The record date will be November 17, 2014, and the payment date will be December 2, 2014. Tax will be withheld at a rate of 15%.

The Company announced today that, as authorized by the Board of Directors, it will increase its share repurchase program by $1.7 billion to $3 billion. The program has no time limitations. The Company intends to begin purchasing shares promptly.

Updated 2014 Financial Outlook

We are updating our 2014 full-year financial outlook, including non-GAAP diluted EPS guidance of $5.00-5.10 compared to $4.90-5.10 as announced in July 2014. See detailed guidance below.

 

2014 Non-GAAP Guidance:
Exclusive Copaxone® Scenario

   Original Guidance
December 2013   Updated Guidance*
October 2014
Net revenues ($B)   19.9 - 20.8   20.0 - 20.3
Gross profit (%)   58% - 60%  59% - 60.5%
R&D expenses ($B)   1.30 - 1.45  1.4
S&M expenses ($B)   4.00 - 4.10  3.70 - 3.80
G&A expenses ($B)   1.2   1.2
Operating income ($B)   5.35 - 5.65  5.65 - 5.75
Finance expenses ($M)   310 - 350  310 - 330
Tax (%)   19% - 20%  19% - 20%
Number of shares (M)   840 - 850   856 - 862
EPS ($)   4.80 - 5.10   5.00 - 5.10
Cash flow from operations ($B)   3.0  4.5
*   The introduction of AB-rated generic competition to Copaxone® could reduce operating income by $40-50 million per month.

Conference Call

Teva will host a conference call and live webcast to discuss its results for the third quarter of 2014 and overall business environment on Thursday, October 30, 2014, at 8:00 a.m. EST. A Question & Answer session will follow this discussion.

In order to participate, please dial the following numbers (at least 10 minutes before the scheduled start time): United States 1-877-391-1148; Canada 1-866-992-3017 International +44(0) 1452-580733; Israel 1-809431559, passcode: 13650976.

A live webcast of the call will also be available on Teva's website at: http://ir.tevapharm.com. Please log in at least 10 minutes prior to the conference call in order to download the applicable audio software.

Following the conclusion of the call, a replay of the webcast will be available within 24 hours on the Company's website. The replay can also be accessed until December 11, 2014, 8:00 a.m. EST by calling United States 1-866-247-4222; Canada 1-866-878-9237 or International +44 (0) 1452-550000; passcode: 13650976#.

About Teva

Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) is a leading global pharmaceutical company, committed to increasing access to high-quality healthcare by developing, producing and marketing affordable generic drugs as well as innovative and specialty pharmaceuticals and active pharmaceutical ingredients.

Headquartered in Israel, Teva is the world's leading generic drug maker, with a global product portfolio of more than 1,000 molecules, sold in more than 100 countries, and with a direct presence in about 60 countries. Teva's specialty medicine businesses focus on CNS, including pain, respiratory, oncology, and women's health therapeutic areas as well as biologics. Teva currently employs approximately 45,000 people around the world and reached $20.3 billion in net revenues in 2013.

Teva's Safe Harbor Statement under the U. S. Private Securities Litigation Reform Act of 1995:

This release contains forward-looking statements, which are based on management's current beliefs and expectations and involve a number of known and unknown risks and uncertainties that could cause our future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include risks relating to: our ability to develop and commercialize additional pharmaceutical products; competition for our innovative products, especially Copaxone® (including competition from orally-administered alternatives, as well as from potential purported generic equivalents) and our ability to migrate users to our new 40 mg/mL version; the possibility of material fines, penalties and other sanctions and other adverse consequences arising out of our ongoing FCPA investigations and related matters; our ability to achieve expected results from the research and development efforts invested in our pipeline of specialty and other products; our ability to reduce operating expenses to the extent and during the timeframe intended by our cost reduction program; our ability to identify and successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions; the extent to which any manufacturing or quality control problems damage our reputation for quality production and require costly remediation; our potential exposure to product liability claims that are not covered by insurance; increased government scrutiny in both the U.S. and Europe of our patent settlement agreements; our exposure to currency fluctuations and restrictions as well as credit risks; the effectiveness of our patents, confidentiality agreements and other measures to protect the intellectual property rights of our specialty medicine; the effects of reforms in healthcare regulation and pharmaceutical pricing, reimbursement and coverage; governmental investigations into sales and marketing practices, particularly for our specialty pharmaceutical products; uncertainties related to our recent management changes; the effects of increased leverage and our resulting reliance on access to the capital markets; any failure to recruit or retain key personnel, or to attract additional executive and managerial talent; adverse effects of political or economical instability, major hostilities or acts of terrorism on our significant worldwide operations; interruptions in our supply chain or problems with internal or third-party information technology systems that adversely affect our complex manufacturing processes; significant disruptions of our information technology systems or breaches of our data security; competition for our generic products, both from other pharmaceutical companies and as a result of increased governmental pricing pressures; competition for our specialty pharmaceutical businesses from companies with greater resources and capabilities; decreased opportunities to obtain U.S. market exclusivity for significant new generic products; potential liability in the U.S., Europe and other markets for sales of generic products prior to a final resolution of outstanding patent litigation; any failures to comply with complex Medicare and Medicaid reporting and payment obligations; the impact of continuing consolidation of our distributors and customers; significant impairment charges relating to intangible assets and goodwill; potentially significant increases in tax liabilities; the effect on our overall effective tax rate of the termination or expiration of governmental programs or tax benefits, or of a change in our business; variations in patent laws that may adversely affect our ability to manufacture our products in the most efficient manner; environmental risks; and other factors that are discussed in our Annual Report on Form 20-F for the year ended December 31, 2013 and in our other filings with the U.S. Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.


Consolidated Statements of Income

(Unaudited, U.S. dollars in millions, except share and per share data)

             
Three months ended   Nine months ended
September 30,   September 30,
2014  2013   2014  2013
Net revenues   5,058  5,059   15,104  14,884
Cost of sales   2,249  2,429   6,937  7,071
Gross profit   2,809  2,630   8,167  7,813
Research and development expenses   412  348   1,109  1,016
Selling and marketing expenses   950  971   2,855  2,948
General and administrative expenses   293  297   897  923
Legal settlements and loss contingencies   (122)  47   (67)  1,509
Impairments, restructuring and others   164  166   364  328
Operating income   1,112  801   3,009  1,089
Financial expenses - net   84  76   243  340
Income before income taxes   1,028  725   2,766  749
Income taxes   160  12   405  (157)
Share in losses of associated companies - net   5  7   13  30
Net income   863  706   2,348  876
Net loss attributable to non-controlling interests   (13)  (5)   (20)  (13)
Net income attributable to Teva   876  711   2,368  889

Earnings per share attributable to Teva:  Basic ($) 1.02  0.84   2.78  1.05
Diluted ($) 1.02  0.84   2.76  1.04
Weighted average number of shares (in millions):  Basic 855  845   852  850
Diluted 861  846   857  851
                    
Non-GAAP net income attributable to Teva:*   1,134  1,072   3,226  3,050

Non-GAAP earnings per share attributable to Teva:  Basic ($) 1.33  1.27   3.79  3.59
Diluted ($) 1.32  1.27   3.77  3.58

Weighted average number of shares (in millions):  Basic 855  845   852  850
Diluted 861  846   857  851
                    

* See reconciliation attached.         


Condensed Consolidated Balance Sheets

(U.S. dollars in millions)

(Unaudited)

    
September 30,  December 31,
2014  2013
ASSETS   
Current assets:   
Cash and cash equivalents  1,473  1,038
Accounts receivable  5,410  5,338
Inventories  4,591  5,053
Deferred income taxes  1,060  1,084
Other current assets  1,388  1,207
Total current assets  13,922  13,720
Other non-current assets  1,479  1,696
Property, plant and equipment, net  6,551  6,635
Identifiable intangible assets, net  5,936  6,476
Goodwill  18,720  18,981
Total assets  46,608  47,508


LIABILITIES AND EQUITY   
Current liabilities:   
Short-term debt  1,832  1,804
Sales reserves and allowances  5,578  4,918
Accounts payable and accruals  2,894  3,317
Other current liabilities  1,365  1,926
Total current liabilities  11,669  11,965

Long-term liabilities:   
Deferred income taxes  1,229  1,247
Other taxes and long-term liabilities  1,222  1,273
Senior notes and loans  8,818  10,387
Total long-term liabilities  11,269  12,907
Equity:   
Teva shareholders' equity  23,633  22,565
Non-controlling interests  37  71
Total equity  23,670  22,636
Total liabilities and equity  46,608  47,508


Condensed Consolidated Cash Flow

(Unaudited, U.S. Dollars in millions)

          
Three months ended  Nine months ended
September 30,  September 30,
2014  2013  2014  2013
Operating activities:       
Net income  863   706   2,348   876
Net change in operating assets and liabilities  182   (601 )  (155 )  609
Items not involving cash flow  379   339   1,182   936
         
Net cash provided by operating activities  1,424   444   3,375   2,421

Net cash used in investing activities  (528 )  (299 )  (1,103 )  (831 )

Net cash used in financing activities  (329 )  (256 )  (1,782 )  (3,264 )

Translation adjustment on cash and cash equivalents  (43 )  14   (55 )  (57 )
         
Net change in cash and cash equivalents  524   (97 )  435   (1,731 )

Balance of cash and cash equivalents at beginning of period  949   1,245   1,038   2,879
         
Balance of cash and cash equivalents at end of period  1,473    1,148    1,473    1,148 


Non GAAP reconciliation items

(Unaudited, U.S. Dollars in millions)

          
Three months ended  Nine months ended
September 30,  September 30,
2014  2013  2014  2013
Amortization of purchased intangible assets - under cost of sales  239   290   756   838
Impairment of long-lived assets  151   131   208   195
Legal settlements and loss contingencies  (122 )  47   (67 )  1,509
Costs associated with cancellation of R&D projects  52   -   52   -
Branded prescription drug fee  40   -   40   -
Costs related to regulatory actions taken in facilities - under cost of sales  13   10   45   38
Restructuring and other expenses  13   35   156   133
Amortization of purchased intangible assets - under selling and marketing expenses  3   10   27   29
Accelerated Depreciation  3   6   10   6
Purchase of research and development in process  -   -   -   3
Financial expense  7   5   6   106
Corresponding tax benefit

(141 )  (173 )  (375 )  (696 )


Reconciliation between reported Net Income attributable to Teva and Earnings per share

as reported under US GAAP to Non-GAAP Net Income attributable to Teva and Earnings per share

                       
Nine months ended September 30, 2014  Nine months ended September 30, 2013
U.S. dollars and shares in millions (except per share amounts)
GAAP  Non-GAAP Adjustments  Non-GAAP  % of Net Revenues  GAAP  Non-GAAP Adjustments  Non-GAAP  % of Net Revenues

Gross profit (1) 8,167  811   8,978  59.4 %  7,813  882   8,695  58.4 %
Operating income (1)(2) 3,009  1,227   4,236  28.0 %  1,089  2,751   3,840  25.8 %
Net income attributable to Teva (1)(2)(3) 2,368  858   3,226  21.4 %  889  2,161   3,050  20.5 %
Earnings per share attributable to Teva - Diluted (4) 2.76  1.01   3.77    1.04  2.54   3.58 



(1)  Amortization of purchased intangible assets   756         838    
Costs related to regulatory actions taken in facilities   45         38    
Accelerated depreciation   10          6     
Gross profit adjustments   811         882    

(2)  Restructuring, acquisition and other expenses   248         136    
Impairment of long-lived assets   208         195    
Legal settlements and loss contingencies   (67 )        1,509    
Amortization of purchased intangible assets   27          29     
416         1,869    
             
Operating income adjustments   1,227          2,751     

(3)  Financial expense   6         106    
Tax benefit   (375 )        (696 )   
             
Net income adjustments   858          2,161     

(4)  The weighted average number of shares was 857 and 851 million for the nine months ended September 30, 2014 and 2013, respectively. Non-GAAP earnings per share can be reconciled with GAAP earnings per share by dividing each of the amounts included in footnotes 1-3 above by the applicable weighted average share number.


Reconciliation between reported Net Income attributable to Teva and Earnings per share

as reported under US GAAP to Non-GAAP Net Income attributable to Teva and Earnings per share

     

Three months ended September 30, 2014   Three months ended September 30, 2013
U.S. dollars and shares in millions (except per share amounts)
GAAP  Non-GAAP Adjustments   Non-GAAP   % of Net Revenues  GAAP   Non-GAAP Adjustments   Non-GAAP   % of Net Revenues

Gross profit (1) 2,809  255   3,064  60.6 %  2,630  306   2,936  58.0 %
Operating income (1)(2) 1,112  392   1,504  29.7 %  801  529   1,330  26.3 %
Net income attributable to Teva (1)(2)(3) 876  258   1,134  22.4 %  711  361   1,072  21.2 %
Earnings per share attributable to Teva - Diluted (4) 1.02  0.30   1.32    0.84  0.43   1.27 



(1)  Amortization of purchased intangible assets   239         290    
Costs related to regulatory actions taken in facilities   13         10    
Accelerated depreciation   3          6     
Gross profit adjustments   255         306    

(2)  Impairment of long-lived assets   151         131    
Legal settlements and loss contingencies   (122 )        47    
Restructuring and other expenses   105         35    
Amortization of purchased intangible assets   3          10     
137         223    
             
Operating income adjustments   392          529     

(3)  Financial expense   7         5    
Tax benefit   (141 )        (173 )   
             
Net income adjustments   258          361     

(4)  The weighted average number of shares was 861 million and 846 million for the three months ended September 30, 2014 and 2013, respectively. Non-GAAP earnings per share can be reconciled with GAAP earnings per share by dividing each of the amounts included in footnotes 1-3 above by the applicable weighted average share number.


Segment Information
Generics   Specialty
Three months ended September 30,   Percentage Change  Three months ended September 30,   Percentage Change
2014   2013  2014 - 2013  2014   2013  2014 - 2013
U.S.$ in millions / % of Segment Revenues    U.S.$ in millions / % of Segment Revenues 
                             
Revenues  2,432  100 %   2,489  100.0 %  (2 %)   2,176  100 %   2,071  100.0 %  5 %
Gross Profit  1,078  44.3 %   984  39.5 %  10 %   1,890  86.9 %   1,788  86.3 %  6 %
R&D Expenses  134  5.5 %   119  4.8 %  13 %   223  10.2 %   221  10.7 %  1 %
S&M Expenses  388  16.0 %   469  18.8 %  (17 %)   473  21.7 %   445  21.5 %  6 %
Segment Profitability*  556  22.9 %   396  15.9 %  40 %   1,194  54.9 %   1,122  54.2 %  6 %

* Segment profitability consists of gross profit, less S&M and R&D expenses related to the segment. Segment profitability does not include G&A expenses, amortization and certain other items.
The data presented has been conformed to reflect the revised classification of certain of our products for all periods.


Segment Information
Generics   Specialty
Nine months ended September 30,   Percentage Change  Nine months ended September 30,   Percentage Change
2014   2013  2014 - 2013  2014   2013  2014 - 2013
U.S.$ in millions / % of Segment Revenues    U.S.$ in millions / % of Segment Revenues 
                             
Revenues  7,345  100.0 %   7,222  100.0 %  2 %   6,317  100.0 %   6,174  100.0 %  2 %
Gross Profit  3,166  43.1 %   2,924  40.5 %  8 %   5,501  87.1 %   5,346  86.6 %  3 %
R&D Expenses  384  5.2 %   351  4.9 %  9 %   664  10.5 %   630  10.2 %  5 %
S&M Expenses  1,195  16.3 %   1,419  19.6 %  (16 %)   1,456  23.0 %   1,348  21.8 %  8 %
Segment Profitability*  1,587  21.6 %   1,154  16.0 %  38 %   3,381  53.5 %   3,368  54.6 %  §

* Segment profitability consists of gross profit, less S&M and R&D expenses related to the segment. Segment profitability does not include G&A expenses, amortization and certain other items.
The data presented has been conformed to reflect the revised classification of certain of our products for all periods.
§ Less than 0.5%.


Additional information
            
Multiple Sclerosis
Three months ended September 30,   Percentage Change
2014  2013   2014 - 2013
U.S.$ in millions / % of MS Revenues  

Revenues 1,107  100.0 %  1,052  100.0 %   5 %
Gross profit 991  89.5 %  943  89.6 %   5 %
R&D expenses 23  2.1 %  18  1.7 %   28 %
S&M expenses 104  9.4 %  127  12.1 %   (18 %)
MS profitability 864  78.0 %  798  75.9 %   8 %


Other Specialty
Three months ended September 30,   Percentage Change
2014  2013   2014 - 2013
U.S.$ in millions / % of Other Specialty Revenues  

Revenues 1,069  100.0 %  1,019  100.0 %   5 %
Gross profit 899  84.1 %  845  82.9 %   6 %
R&D expenses 200  18.7 %  203  19.9 %   (1 %)
S&M expenses 369  34.5 %  318  31.2 %   16 %
Other Specialty profitability 330  30.9 %  324  31.8 %   2 %

We recently changed the classification of certain of our products.
The data presented has been conformed to reflect the revised classification for all periods.

 


Additional information
             
Multiple Sclerosis
Nine months ended September 30,   Percentage Change
2014  2013   2014 - 2013
U.S.$ in millions / % of MS Revenues  

Revenues $ 3,116  100.0 %  $ 3,186  100.0 %   (2 %)
Gross profit  2,792  89.6 %   2,850  89.5 %   (2 %)
R&D expenses  65  2.1 %   59  1.9 %   10 %
S&M expenses  389  12.5 %   367  11.5 %   6 %
MS profitability  2,338  75.0 %   2,424  76.1 %   (4 %)


Other Specialty
Nine months ended September 30,   Percentage Change
2014  2013   2014 - 2013
U.S.$ in millions / % of Other Specialty Revenues  

Revenues $ 3,201  100.0 %  $ 2,988  100.0 %   7 %
Gross profit  2,709  84.6 %   2,496  83.5 %   9 %
R&D expenses  599  18.7 %   571  19.1 %   5 %
S&M expenses  1,067  33.3 %   981  32.8 %   9 %
Other Specialty profitability  1,043  32.6 %   944  31.6 %   10 %

We recently changed the classification of certain of our products.
The data presented has been conformed to reflect the revised classification for all periods.


Reconciliation of our segment profitability
to Teva's consolidated income before income taxes
      
Three months ended September 30,
2014  2013
U.S.$ in millions

Generic medicine profitability  556    396
Specialty medicine profitability   1,194      1,122
Total segment profitability  1,750    1,518
Profitability of other activities   47      109
Total profitability  1,797    1,627
Amounts not allocated to segments:    
Amortization  242    300
General and administrative expenses  293    297
Legal settlements and loss contingencies  (122 )   47
Impairments, restructuring and others  164    166
Other unallocated amounts   108      16
Consolidated operating income   1,112      801
Financial expenses - net   84      76
Consolidated income before income taxes   1,028      725


Reconciliation of our segment profitability
to Teva's consolidated income before income taxes
      
Nine months ended September 30,
2014  2013
U.S.$ in millions

Generic medicines profitability  1,587    1,154
Specialty medicines profitability   3,381      3,368
Total segment profitability  4,968    4,522
Profitability of other activities   165      241
Total profitability  5,133    4,763
Amounts not allocated to segments:    
Amortization  783    867
General and administrative expenses  897    923
Legal settlements and loss contingencies  (67 )   1,509
Impairments, restructuring and others  364    328
Other unallocated amounts   147      47
Consolidated operating income   3,009      1,089
Financial expenses - net   243      340
Consolidated income before income taxes   2,766      749


Revenues by Activity and Geographical Area
(Unaudited)
                 
Three Months Ended
September 30,

Percentage Change

Percentage Change
2014  2013   2014 - 2013  2014 - 2013
U.S. $ in millions     in local currencies
Generic Medicine          
United States  $ 1,124  $ 1,137   (1 %)  (1 %)
Europe*   757   784   (3 %)  (4 %)
Rest of the World    551    568   (3 %)  4 %
Total Generic Medicine   2,432   2,489   (2 %)  (1 %)
Specialty Medicine          
United States   1,533   1,508   2 %  2 %
Europe*   467   460   2 %  1 %
Rest of the World    176    103   71 %  81 %
Total Specialty Medicine   2,176   2,071   5 %  5 %
Other Revenues          
United States   3   66   (95 %)  (95 %)
Europe*   184   194   (5 %)  (3 %)
Rest of the World    263    239   10 %  14 %
Total Other Revenues    450    499   (10 %)  (7 %)
Total Revenues  $ 5,058  $ 5,059   §  1 %

* All members of the European Union, Switzerland, Norway, Albania and the countries of former Yugoslavia.
The data presented has been conformed to reflect the revised classification of certain of our products for all periods.
§ Less than 0.5%.


Revenues by Activity and Geographical Area
(Unaudited)

       Nine Months Ended September 30,   Percentage Change   Percentage Change
2014   2013  2014 - 2013  2014 - 2013
U.S. $ in millions     in local currencies
Generic Medicines         
United States  $ 3,240   $ 2,997   8 %  8 %
Europe*   2,389    2,460   (3 %)  (6 %)
Rest of the World    1,716     1,765   (3 %)  6 %
Total Generic Medicines   7,345    7,222   2 %  3 %
Specialty Medicines         
United States   4,482    4,485   §  §
Europe*   1,450    1,351   7 %  4 %
Rest of the World    385     338   14 %  23 %
Total Specialty   6,317    6,174   2 %  2 %
Other Revenues         
United States   104    192   (46 %)  (46 %)
Europe*   597    578   3 %  2 %
Rest of the World    741      718   3 %  6 %
Total Other Revenues    1,442     1,488   (3 %)  (2 %)
Total Revenues  $ 15,104   $ 14,884   1 %  2 %

* All members of the European Union, Switzerland, Norway, Albania and the countries of former Yugoslavia.
The data presented has been conformed to reflect the revised classification of certain of our products for all periods.
§ Less than 0.5%.



Revenues by Product line
(Unaudited)
       
Three Months Ended
September 30,

Percentage Change
2014  2013  2014 - 2013
U.S. $ in millions 

Generic Medicine  $ 2,432  $ 2,489  (2 %)
API   185   170  9 %
Specialty Medicine   2,176   2,071  5 %
CNS   1,440   1,362  6 %
Copaxone®   1,107   1,052  5 %
Azilect®   103   93  11 %
Nuvigil®   94   87  8 %
Oncology   299   251  19 %
Treanda®   180   184  (2 %)
Respiratory   218   235  (7 %)
ProAir®   111   112  (1 %)
Qvar®   64   69  (7 %)
Women's Health   137   134  2 %
Other Specialty   82   89  (8 %)
All Others   450   499  (10 %)
OTC   225   286  (21 %)
Other Revenues    225    213  6 %
Total  $ 5,058  $ 5,059  §

We recently changed the classification of certain of our products.
The data presented has been conformed to reflect the revised classification for all periods.
§ Less than 0.5%.


Revenues by Product line
(Unaudited)
         
Nine Months Ended September 30,  Percentage Change
2014  2013   2014 - 2013
U.S. $ in millions  

Generic Medicines  $ 7,345  $ 7,222   2 %
API   546   552   (1 %)
Specialty Medicines   6,317   6,174   2 %
CNS   4,124   4,082   1 %
Copaxone®   3,116   3,186   (2 %)
Azilect®   320   273   17 %
Nuvigil®   283   244   16 %
Oncology   845   736   15 %
Treanda®   541   532   2 %
Respiratory   705   710   (1 %)
ProAir®   358   315   14 %
Qvar®   209   239   (13 %)
Women's Health   389   376   3 %
Other Specialty   254   270   (6 %)
All Others   1,442   1,488   (3 %)
OTC   768   849   (10 %)
Other Revenues    674    639   5 %
Total  $ 15,104  $ 14,884   1 %

We recently changed the classification of certain of our products.
The data presented has been conformed to reflect the revised classification for all periods.

 
2014 Non-GAAP Guidance - Exclusive Copaxone® Scenario
Original Guidance   Updated Guidance*
December 2013   October 2014
Net revenues ($B)  19.9 - 20.8  20.0 - 20.3
Gross profit (%)  58% - 60%  59% - 60.5%
R&D expenses ($B)  1.3 - 1.45  1.4
S&M expenses ($B)  4.0 - 4.1  3.7 - 3.8
G&A expenses ($B)  1.2   1.2
Operating income ($B)  5.35 - 5.65  5.65 - 5.75
Finance expenses ($M)  310 - 350  310 - 330
Tax (%)  19% - 20%  19% - 20%
Number of shares (M)  840 - 850   856 - 862
EPS ($)  4.80 - 5.10   5.00 - 5.10
Cash flow from operations ($B)  3.0  4.5

* The introduction of AB-rated generic competition to Copaxone® could reduce operating income by $40-50 million per month.


Source: Teva Pharmaceutical Industries Ltd.

Teva Pharmaceutical Industries Ltd.
IR Contacts:
Kevin C. Mannix, United States, 215-591-8912
Ran Meir, United States, 215-591-3033
Tomer Amitai, Israel, 972 (3) 926-7656
or
PR Contacts:
Iris Beck Codner, Israel, 972 (3) 926-7246
Denise Bradley, United States, 215-591-8974

Suggested Articles

Pfizer is doubling down on real-world data in HR-positive, HER2-negative breast cancer patients to boost its case for blockbuster Ibrance.

Sanofi, which has moved purposefully into high technologies to get more from its manufacturing, will lean even more on that strategy to save costs.

In a last-minute deal during North American trade talks, the Trump administration agreed to scrap rules protecting biologic drugs from copycat rivals.